1 Introduction 1

2 Overview of Internal Trade 4

3 Estimating Internal Trade Costs 6

4 The Model 12

5 Simulations 16

  5.1 Full Internal Trade Liberalization 16

  5.2 Sector-Specific Gains from Liberalization 17

  5.3 A Potentially Virtuous Cycle of Provincial Liberalization 21

  5.4 Offsetting External Trade Costs 26

  5.5 Robustness of Baseline Results 28

6 Conclusion 29

Appendix 32

  A Recent Policies 32

  B Virtuous Liberalization Cycle 34